Oil producers led by Exxon Mobil Corp., Chevron Corp. and Tullow Oil Plc tripled spending in sub- Saharan Africa to $30 billion a year in a decade, finding twice the U.S.’s remaining reserves. The flow of cash is now at risk as nations from Uganda to Ghana tighten control of the industry.

Explorers face being stripped of licenses or awarded less favorable contracts as governments seek to reassert authority over their natural resources. There’s also the challenge of operating in countries emerging from civil war such as the Democratic Republic of Congo and Sierra Leone.

“Governments are under much more pressure to make demands on oil and gas companies in terms of oil exploration and oil revenue coming into the national coffers,” said Rolake Akinola, a London-based Africa analyst at Eurasia Group. “That trend will only continue.”

Ghana blocked Exxon’s $4 billion bid to buy a stake in the country’s Jubilee field from Kosmos Energy LLC this year. Tullow’s plans to start pumping from fields in Uganda with 1 billion barrels of oil have been held up by a tax dispute. Both countries are set to become major oil exporters for the first time as discoveries are put into production.

“Government interference in Uganda and Ghana is a major concern,” said Dougie Youngson, an analyst at Arbuthnot Securities Ltd. in London. “This is all part of the pattern of operating in Africa.”

Nigeria, the continent’s biggest producer with output of about 2 million barrels a day last month, will increase taxes and royalties from production when it passes a new oil law. Foreign oil companies have said it may make investment in offshore fields unprofitable.

Estimated Reserves

The African clampdown comes as oil companies are having to search further afield as established areas such as the North Sea run out of petroleum deposits while others are off-limits.

Sub-Saharan Africa currently supplies about 7 percent of the world’s crude, led by Nigeria and Angola, according to BP Plc. From 1989 to 2009, Africa’s estimated oil reserves more than doubled to 127.7 billion barrels, equivalent to about 9.6 percent of the world’s total, according to BP. The U.S.’s reserves stand at about 28.4 billion barrels.

Annual oil investment in sub-Saharan Africa, from Mozambique to Sierra Leone, more than tripled between 2000 and 2009 to about $30 billion, according to Wood Mackenzie Consultants Ltd.

License Tenders

Along the West African coast, Liberia, Gabon and Sao Tome & Principe are currently holding tenders for exploration licenses. The geology that stretches from Mauritania to northern Namibia may hold 71.7 billion barrels of undiscovered oil, according to U.S. Geological Survey estimates.

“It’s low cost to enter through exploration awards,” said Martin Kelly, the head of sub-Sahara Africa research at Edinburgh, Scotland-based Wood Mackenzie. “There is plenty of interest.”

And plenty of risk, as Tullow found when Congo nullified a 2006 agreement with the Irish explorer and handed two oil blocks to companies owned by South African President Jacob Zuma’s nephew in June.

The country, which is recovering from four decades of war and dictatorship, will struggle to attract “legitimate” investment if it doesn’t honor contracts in a transparent way, Tullow said at the time.

Venus Find

Tullow and Anadarko Petroleum Corp. are partners in the deepwater Venus discovery in Sierra Leone, which may hold as many as 1 billion barrels of crude, and also plan wells in Liberia. In September, Liberia approved an offshore oil exploration accord with Chevron.

In 2001, Sierra Leone’s government and the rebel Revolutionary United Front agreed to end a decade of fighting that killed tens of thousands of people and displaced 2 million others.

“Difficult bureaucracy and weak constitutions” are the main risks for investment in Liberia and Sierra Leone, said Alex Vines, an Africa expert at the Royal Institute of International Affairs in London. “These are weakened states that have come out of civil war.”

In Ghana, Kosmos, the U.S. explorer backed by Blackstone Group LP and Warburg Pincus LLC, was accused of breaking the terms of its contract by marketing assets to Exxon without the consent of the country’s national energy company, a charge it denied.

Tullow paid Heritage Oil Plc $1.5 billion in July to take full control of two Ugandan blocks, prior to bringing in China National Offshore Oil Corp. and Total SA as partners. Final approval has been held up until the issue of capital gains tax between the Ugandan government and Heritage is resolved.

“We have major investments all over Africa,” said Aidan Heavey, Tullow’s chief executive officer. “The Ghanaian government and the Ugandan government both have very strong legal systems, very strong tax systems. They follow those and we have no problem with it.”

Ugandan Finance Minister Syda Bbumba told reporters in the capital city of Kampala last month that the tax row “will be resolved soon.”

The challenges of African exploration, which include project delays as well as changes to contracts, have caused some companies to reconsider their investment.

Premier Oil Plc, a U.K.-based explorer, considered selling its stake in Mauritania’s Chinguetti oil field, the only producing project in the country, after the government changed the terms of its contract and output lagged expectations.

‘Dominant Position’

Although it retained its 8.1 percent stake, Premier is now focusing exploration in North Africa, the Middle East and South- East Asia, CEO Simon Lockett said in an interview.

Dana Petroleum Plc, the recent target of a successful $2.9 billion hostile takeover offer by Korea National Oil Corp., said the best way to profit from African oil is to sell any discoveries.

Reporting Oil and Gas project was launched on 4th June 2009atTakoradi, Western Region, Ghana by Penplusbytes (PPB – www.penplusbytes.org) with the vision of providing a one stop online information and knowledge about Ghana’s oil and gas sector

About Us

Reporting Oil and Gas project was launched on 4th June 2009 at Takoradi, Western Region, Ghana by Penplusbytes (www.penplusbytes.org) with the vision of providing a one stop online information and knowledge about Ghana’s oil and gas sector
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